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Energy policies will be crucial to Thailand's economic growth

Chodechai Suwanaporn
Special to The Nation January 24, 2012 1:00 am

One of the major contributors to Thailand's rapid economic growth during the last half of the 20th century was the availability of cheap energy, contributed mainly by fossil fuels, especially petroleum.

Cheap energy supply has supported the country in its transformation from an agrarian society towards industrial economy. In understanding the intensity and dependency of energy usage in Thailand vis-a-vis other countries, the commonly-used measure is the ratio of primary energy consumption over gross domestic product, measured in constant US dollars at purchasing power parities.

As of 2009, this ratio for Thailand was still relatively high at 0.23 compared to the world average of 0.19. This indicates that the country is still heavily dependent on energy consumption. In the regional context, Thailand is Southeast Asia's second-largest consumer of energy, with total domestic consumption at 108.7 million tonnes of oil equivalent (TOE) in 2011, below the 231.4 million in Indonesia, but above the 78.4 million in Malaysia, 45.6 million in the Philippines and 21.2 million in Singapore.

As cheap energy sources are diminishing, coupled with rising demand from large emerging economies such as China and India, the challenge for the Thai economy in the coming decades will be how to cope with highly volatile commodity/energy prices and a sustained rising trend that will push up the cost of raw materials and cost of living for all Thais. We can see that, in the past decade alone, crude oil prices have increased on a sustained basis from US$10-15 per barrel to the historic peak of over $140 prior to the US financial crisis in late 2008. Nowadays, the crude oil price remains high at $100 to $110 per barrel, with many analysts anticipating oil prices to rise further by the end of this year despite the softening trend in the global economy.

For Thailand, major developments in the energy sector in the coming years may be drawn from the current Power Development Plan (PDP). It is expected that, despite an expansion in Thailand's domestic electricity-generating capacity in line with the PDP, the country will remain a net importer of electricity over the coming decade to 2020. Burma and Laos will remain Thailand's main suppliers of electricity, with Burma eventually becoming the dominant supplier as new hydropower plants come on stream. Fossil fuels will continue to dominate Thailand's energy mix. The proportion of electricity generated by natural gas-fired power plants is expected to fall slightly in the coming years, but natural gas will remain the dominant fuel, continuing to account for around 60 per cent of electricity generation by 2020. Owing to declining domestic reserves, Thailand will have to import more natural gas. Coal will remain the country's second-biggest source of energy, with a share of around 20 per cent.

Hydropower will remain Thailand's main source of renewable energy, accounting for around 10 per cent of total electricity generation. Non-hydro renewables including geothermal, solar and wind power will make a negligible contribution to power generation. At present Thailand does not have any nuclear power plants, but the PDP includes plans to build four such facilities with a combined generating capacity of 4,000 megawatts, which are due to come on stream by 2021. Despite the controversial nature of nuclear power, Thailand's state-owned electricity generator and distributor, EGAT, remains determined to push ahead with plans to build nuclear plants. Overall, the government projects that total installed electricity-generating capacity in Thailand will reach 58,200 megawatts by the end of 2021, up from 28,500 megawatts at present. In terms of sectoral usage, it is expected that industry and transport will continue to be the main users of energy in Thailand over the next 20 years.

For Thailand's energy policy options, there is a wide range of policies Thailand should pursue both in the short-term and medium-term, as well as policies to provide safety nets for affected people. In the short term, the government should allow market mechanisms to set the energy prices and re-evaluate our energy price subsidies system. Universal fuel price subsidies should be abolished as the policy is regressive, with the rich benefiting more than the poor. Universal subsidies similar to what many previous Thai governments have done so far with diesel, LPG and natural gas often lead to over-consumption (hence, inefficient use of energy) and illegal smuggling activities (look at the illegal smuggling of LPG from neighbouring countries to Thailand as an example). Moreover, these subsidies are very difficult to get rid off (look at the recent taxi protests when the government tried to end the compressed natural gas [CNG] subsidy).

Over the longer term, the government will have to tackle structural issues in the energy sectors. We will have to make efforts to diversify our energy supply sources and promote efficiency to reduce overall reliance on oil. In my opinion, the projections from our current PDP and the progress made thus far are not very encouraging, with little change to the status quo. We will have to think of new energy sources, particularly in viable alternative energy such as bio-fuels, ethanol and wind energy. Nuclear power, cost-effective with minimal greenhouse gas emission, may have to be considered as a viable option as our neighbour Vietnam is planning to build nuclear power plants with Russian and Korean technologies starting in 2014 and begin operations by 2020.

On the energy demand-side, we certainly could improve the efficiency of energy consumption, particularly in the transport sector. Thailand's transport sector is dependent on fossil fuels (72 per cent of total energy consumed in the sector is petroleum), thus contributing significantly to greenhouse gas emissions in Thailand (the 24th largest emitter in the world). Our transport sector relies heavily on land transport (therefore is not as energy efficient as it would be if it was more multi-modal). In the future, we need to switch to other types of fuels and transport. Water and rail can be strengthened but require public investment and planning. We should seize the opportunity as the government plans to borrow Bt350 billion to invest in needed transport infrastructure. Rail reform is crucial as a key policy to enhance energy efficiency and reduce logistics costs, which could make Thailand more competitive vis-a-vis other Southeast Asian countries. Other transport policies also need to be implemented, such as improved vehicle standards and better urban bus services and mass transit systems.

It is undeniable that energy development goes hand in hand with economic progress. One is a prerequisite of the other. Let's hope that Thailand in 2020 will be a more efficient energy user than it is currently.